NYSE Regulators to Member Firms and Reps: We Are Watching You

Broker/dealers had a very strong 2005. But so too did the regulators. According to Susan Merrill, chief of enforcement for the New York Stock Exchange Regulation, 2005 was a “landmark year for enforcement.” In a “year-in-review” presentation for financial reporters Wednesday morning, Merrill and other top officials from NYSE Regulation ticked off a litany of successes on the regulatory front, from revenue sharing disclosures, to prospectus delivery, to “disruptive” trading and other malfeasance.

Broker/dealers had a very strong 2005. But so too did the regulators. According to Susan Merrill, chief of enforcement for New York Stock Exchange Regulation, 2005 was a “landmark year for enforcement.” In a “year-in-review” presentation for financial reporters Wednesday morning, Merrill and other top officials from NYSE Regulation ticked off a litany of successes on the regulatory front, from revenue-sharing disclosures, to prospectus delivery, to “disruptive” trading and other malfeasance.

While most of the initiatives do not directly affect reps, you can bet they will continue to feel the heat, especially since the NYSE seems eager to show why it should continue to exist as a separate regulatory entity and not be folded into some other body.

Merrill said the NYSE reviewed penalties against offending member firms and their registered reps and “sharpened them to deter them, but also to send a message to brokers out there: We are watching.” For floor specialists and brokers, this will be literally true, as the NYSE said it plans on putting them under video surveillance in the second quarter of next year.

The NYSE Regulation staff ticked off its accomplishments: It levied $17 million in fines on member firms and individuals (and an additional $18 million with other regulators), suspended 93 people, 25 of them barred permanently, and delisted 19 companies for cause, among other actions.

While the assembled NYSE executives were happy to detail their goals for 2006, they would not comment on the push by some of its member firms to fold the NYSE and the NASD into a single hybrid regulator. A Wall Street Journal editorial Wednesday morning had called for just such a reorganization, complaining that b/ds wasted too much time and money responding to sometimes overlapping regulatory requests. The editorial said that NYSE CEO John Thain was warm to the idea. (For more on Thain and the Securities Industry Association’s view on this, please go to http://registeredrep.com/news/SIA-2005-conference/.)

Naturally, the assembled press wanted a reaction. But Richard Ketchum, NYSE chief regulatory officer, put the cabash on those expectations, saying that he would not comment other to say, “There is no difference between our positions.” Ketchum indicated that, like Thain, he was open to discussing any and all solutions to streamline regulatory activities to keep overlap among the NASD, NYSE and SEC to a minimum.

Almost as if to quell its own members and the industry’s complaints of regulatory overlap, the NYSE said that it had developed “a coordinated plan of examination” to divide up firms with the NASD, so that both aren’t duplicating their efforts. Grace Vogel, head of member firm regulation, said the NYSE was actively trying to ease “unnecessary regulatory burden” on firms and have taken “major strides to reduce overlap with the NASD.”

Vogel also spoke about initiatives begun in 2005, such as investigating “lavish entertainment” by member firms, best execution and various new rules to help protect investors. Guidance on how member firms should review and retain electronic communication would be forthcoming shortly, she said. The regulators said that in 2006 NYSE Regulation would continue to investigate the suitability of fee-based accounts and stated they were “concerned about abusive practices with the stock loan area.”